Are the rich making you poor?

MOST adults accept that life is not fair, but the word fairness gets used a lot when we talk about income inequality. Is it right that some have so much material comfort and security, while others have so little? On the other hand, is it fair that talented, hard-working people must give away the fruits of their labour? What’s fair and whether it matters depend on one's personal values. But for policymakers, the important issue to think about is the nature of the income inequality. Are the rich getting richer while the poor and middle class stay the same? Or, are the rich getting rich at the expense of the poor? When the latter is true, the case for intervention is stronger.According to a recent New York Times article the rich getting richer hsa made the poor worse off. The argument is that the poor and middle class become discouraged and give up: Yet the increasingly outsize rewards accruing to the nation’s elite clutch of superstars threaten to gum up this incentive mechanism. If only a very lucky few can aspire to a big reward, most workers are likely to conclude that it is not worth the effort to try. The odds aren’t on their side.Inequality has been found to turn people off. A recent experiment conducted with workers at the University of California found that those who earned less than the typical wage for their pay unit and occupation became measurably less satisfied with their jobs, and more likely to look for another one if they found out the pay of their peers. Other experiments have found that winner-take-all games tend to elicit much less player effort — and more cheating — than those in which rewards are distributed more smoothly according to performance. The logical leap between the two paragraphs is confusing. There’s a world of difference between being frustrated that the guy in the cubical next to you makes more for doing the same job and your feelings about the fact that Kim Kardashian made $6m last year. (Maybe your soul dies a little every time you watch “Keeping up with the Kardashians”, but the show probably does not make you want to give up on life all together.) Also the policy implications of this argument are unclear. It would be a terrible idea to put a limit on how much one person can earn because it makes someone else feel bad.read more

With Gerard Depardieu giving up his French passport to escape the French taxman, it’s fashionable for other rich folks to threaten to move to reduce their taxes. In the US, that consists of trying to play various states off each other, since the US taxes citizens on world wide income. The only way to escape is become a tax fugitive like Mark Rich and live in Switzerland and have people who are expert at moving your money around (I actually met one of them once, a man named Mikey.

Racial tensions in the United States are likely to deteriorate if greater efforts are not made to narrow the rich-poor divide and create jobs for hard-pressed ordinary Americans, President Barack Obama has warned.
Urging Washington to give up political point-scoring and focus on rebuilding America’s sluggish economy, Mr. Obama said that years of stagnant wages and depressed incomes had left people “anxious” and “frustrated.”

Today, we are fortunate to have a guest contribution written by Olivier Coibion (UT Austin), Yuriy Gorodnichenko (UC Berkeley), Lorenz Kueng (Northwestern) and John Silvia (Wells Fargo); it is based on IMF Working Paper No. 199

MOST adults have come to accept that life is not fair. Even when we’ve upheld our end of the bargain, things don’t always work out as one might have expected. The resulting disappointment tends to be especially bitter when it comes to retirement. Yesterday, British public-sector workers went on strike in response to demands that they work longer and contribute more to their pensions. I am struck by how much the word "fair" is being used.

“People with money can get friendly with their local GP at a dinner party, maybe see them out of hours if there’s an emergency” says Cameron.Paul is critical of this, and rightly so; GPs don’t want to socialize with people whose piles they saw that morning.